You are here

British Airways owner IAG's profit propelled by North American tailwind

Dublin

BRITISH Airways owner IAG gave an optimistic outlook on Friday as growing revenues in North America and an easing in fuel cost growth helped it exceed profit forecasts for the first half of its key summer period, lifting its shares.

IAG chief executive Willie Walsh also said he "would like to hope" that British Airways could reach a deal with its pilots, who last month voted for strike action in a dispute over pay, although they have not yet served notice.

"Despite fuel cost headwinds, we delivered a good performance. We're on track to meet our financial targets," Mr Walsh said of the owner of Iberia, Aer Lingus and Vueling.

sentifi.com

Market voices on:

IAG shares were up 2.3 per cent at 0915 GMT compared to a fall of 2 per cent on Europe's STOXX 600 index, after IAG said second-quarter operating profit had risen to 960 million euros (S$1.47 billion).

This was 5 per cent ahead of the 914 million euros forecast in an IAG poll of analysts, and up from 900 million last year and a sharp contrast to a 60 per cent fall in first quarter operating profit.

IAG said its revenue per passenger was up 1.1 per cent in the quarter on a constant currency basis, up from a fall of 1.4 per cent in the first three months, while fuel unit costs growth came in better than expected at 6.3 per cent.

Passenger revenue per seat kilometre in North America rose 2.9 per cent, from a fall of 2.3 per cent in the previous quarter, while in Europe they improved from a fall of 5.7 per cent in the first quarter to a fall of 1.1 per cent in the second.

"Given all the uncertainties over global growth and Brexit, this looks to be a very strong statement by the company and implies that forward bookings are trending well," Goodbody analyst Mark Simpson said in a note.

The strong results come days after rival Lufthansa cited intense short-haul competition in Europe for pushing profits down 25 per cent and Ryanair cited a weak fare environment for profit down 21 per cent in the same quarter.

But Mr Walsh, who has trimmed traffic growth plans for the last three months of the year to 3.2 per cent from 5.9 per cent six months ago, said he was not too concerned about oversupply.

"We think the supply environment is going to be OK, certainly in the fourth quarter and going into the first quarter of next year," he told journalists in a conference call, saying he planned to taper growth in the last three months of the year.

"The economic environment is clearly softening, but it is still reasonably good," he added.

Air France-KLM this week posted even stronger growth in operating profit of 16 per cent as new chief executive Ben Smith's cost-cutting helped offset fuel cost rises.

While Mr Walsh said he was worried about the economic impact of Britain's plan to leave the European Union on Oct 31, he did not see significant regulatory issues and had not yet seen any impact on bookings.

He also said he was in talks to bring forward the first delivery of Boeing's grounded 737 MAX jet by a year to 2022.

IAG stunned industry executives at the Paris Airshow in June by signing a letter of intent to buy 200 737 MAX jets, with a plan for deliveries between 2023 and 2027.

"We are looking at bringing forward the delivery to 2022, which we think will be possible," Mr Walsh said. REUTERS